Have you as a customer ever worried about what would happen if you pay a builder or tradesman in advance for work and then he goes bust leaving you with the loss of your money? If this is a concern that you have you would be well advised to consider using an escrow payment system to help safeguard your money and give you piece of mind. Likewise if you are a tradesman and you have ever worried about doing work in advance for a customer and not getting paid, escrow is the solution for you.
Escrow works by putting money in the control of an independent and licensed third party in order to protect both the customer and service provider in a transaction. When both parties confirm that the work has been completed as per the terms set, the money is released. If at any stage there is a dispute between the parties in the agreement it is resolved with the help of a dispute resolution process which has been agreed in advance by the parties. The outcome of the dispute resolution process will decide what happens to money in escrow.
Escrow was most commonly used in the past for property purchase transactions where the solicitor held money on behalf of the purchaser until all of the necessary documentation had been completed and the money could then be released to the seller. In recent years escrow is widely used for services that are outsourced or products purchased over the Internet where the money can be held in escrow until the service or product has been delivered and is up to an acceptable standard. Traditionally escrow was an expensive service as there was a lot of administration involved and solicitors fees are not cheap. However, in the last 10-15 years there are a number of online escrow services available and these have made escrow much more affordable costs now as little as €35 per transaction.
We recommend using escrow to everyone who uses our service to hire a tradesman and I am really flabbergasted that escrow is not a much more common feature used in all Irish business transactions today. Because businesses don’t use escrow they probably need to allow about a 10% margin on their sales just to allow for bad debts and non-payments. Having to allow for bad debts is bad for competitiveness but even if 10% were a fair average figure, businesses are still playing Russian Roulette by not using escrow. While some businesses may only get caught for a miniscule amount of bad debt, other businesses will get hit by a huge amount that could just wipe them out overnight. This means they in turn can’t pay their suppliers and more and more businesses are adversely affected and/or put out of business as a result.
There are a number of online escrow payment systems available online. For example Tradesmen.ie currently recommend Escrow.com for anyone using our site. This is the same escrow service that Ebay recommends. Here’s how it works:-
Customer and Service Provider Agree to Terms
Both parties agree to terms of the transaction, which includes a description of each phase of the project, price of each phase, number of days for the customer’s inspection, and which party pays the escrow fee.
Buyer pays the escrow service
The Buyer submits an available payment option e.g. by cheque, bank draft, postal order, electronic funds transfer(EFT), credit card etc. The escrow service verifies the payment. Processing time varies by payment method.
Service provider delivers the service
Upon payment verification, the service provider is authorized to deliver the service. The escrow service asks the buyer to confirm when the service is received. If there is only one phase is in the transaction then the transaction moves to the “customer accepts” stage but if there is more than one phase, then the service provider is asked to deliver the next phase after the customer has accepted the current phase.
Customer accepts the service
The customer has a set number of days for an inspection and the option to accept or reject the service.
The escrow service pays the service provider
The escrow service pays the Seller by the method selected by the Seller. The transaction is complete.
How customers are protected:
The service provider isn’t paid until the customer accepts the service, or the inspection period expires. Therefore the money is only released after the customer has confirmed that they are happy with the service provided.
How service providers are protected:
The service provider is authorized to deliver the service only after the escrow service verifies good funds. Therefore the funds are already in place and as long as the customer is happy with the service provided the service provider is guaranteed to get their money when the job is signed off by the customer.
I hope I have convinced you to consider using an escrow payment service in the future whenever you are hiring a tradesman or indeed service provider of any kind. If you have any comments or suggestions to make about this article please feel free to do so below.
March 11th 2013
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